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The Sino-US trade war has a huge impact on the textile industry1

Recently, the Sino-US trade war has continued to intensify and has become the main force impacting the market. On April 3, the United States announced a list of US$50 billion of tariffed goods and imposed a 25% tariff on some Chinese goods. On April 4, in order to counter the US, the State Department decided to impose a 25% tariff on some goods originating in the United States, including uncombed US cotton and cotton linters. Trump then announced that he would continue to add an additional $100 billion to the list of tariffed goods. What impact will the Sino-US trade war have on the cotton market? The impact of Sino-US trade war on cotton upstream (1) Short-term bearish US cotton but limited impact, long-term price depends on fundamentals / ton becomes about 17,700 yuan / ton, that is, an increase of about 3,500 yuan / ton cost. 2. This will make U.S. cotton uncompetitive in the Chinese market. In the short term, it will be clearly negative for U.S. cotton exports, which in turn is negative for U.S. cotton prices. On April 4, ICE cotton futures fell by 3.05%. 3. As of March 22, China has accumulated a net contract of about 553,000 tons of U.S. cotton in 2017/18, accounting for 16.2% of total U.S. cotton exports. Since the proportion of U.S. cotton exports to the Chinese market is not particularly large, after the short-term negative impact, U.S. cotton will expand to other sales markets, and the price of U.S. cotton will return to the fundamentals, and the probability of stabilization and recovery is high. On April 5-6, the price of US cotton rose rapidly by 4%, which initially confirmed this transmission logic. (2) Short-term benefits for Zheng cotton, but limited price boost 1. The imposition of tariffs will increase the import cost of U.S. cotton by about 3,500 yuan/ton, which will make U.S. cotton uncompetitive at home, and China will increase the number of Australian cotton, Indian cotton, The purchase of Brazilian cotton will lead to an increase in the basis of cotton in these origins, and the cost of domestic cotton will increase, which will benefit Zheng cotton prices in the short term. 2. In the long run, the increase in tariffs will bring limited benefits to domestic cotton prices. It is estimated that in 2018, the annual import volume of cotton in China will be about 1.15 million tons, the storage supply will be about 2.3 million tons, and the self-production will be about 5.75 million tons. According to the limit value of 550,000 tons of US cotton imports, accounting for about 6% of the total supply, the increase of 3,500 yuan / ton will boost the overall cotton price by about 210 yuan / ton, an increase of about 1.4%. And due to the substitution of other imported cotton, the increase in the domestic cotton cost due to the US cotton tax is less than the above limit estimate. The impact of the Sino-US trade war on cotton downstream The annual import volume of the entire upstream cotton is only about 1.11 million tons, and the total trade volume is about 16 billion yuan; of which the US cotton is about 550,000 tons, and the total trade volume is about 7.8 billion yuan. However, the annual export value of textile and clothing to the United States alone is about 300 billion yuan, and the volume is much larger than that of the upstream. If the trade war continues to escalate and expand to the field of textiles and apparel, the 25% tariff will seriously affect exports to the United States. Competitors such as Southeast Asia may fill the market vacated by my country. It will become more difficult to regain the market after a long time of replacement. This is a potential big negative for my country's cotton consumption, and its impact on prices can only be qualitative but not quantified. Of course, the above is only a rational and logical deduction. The trade war itself has uncertainties, and the impact of market sentiment is expected to be severe. There may be irrational fluctuations in market prices in the short term. Investors are advised to take precautions against risks.

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